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THERE is growing awareness that Pakistan is firmly on the road back to the IMF for an emergency loan as the country’s foreign exchange reserves head towards the critical mark of one month’s import cover. It is an open question when that point will be reached, considering that the recent rounds of exchange-rate depreciation have given a boost to exports. But that boost may not last long, and the depreciations have also driven inflation since they are responsible for the rise in the price of fuel imports, both petroleum and natural gas. The debate on timing aside, the fact that Pakistan is set to repeat the cycle of depleting foreign exchange reserves, followed by an approach to the IMF, shows that despite growth in the real sector, the fundamental dysfunctions of the economy remain entrenched in the five years since 2013 when the Fund’s support was last availed.

Now that the awareness of an impending return to the IMF is spreading, some anxieties are being stoked along the way. A recent report in the Financial Times, citing unnamed officials, pointed out that being in a Fund programme would mean opening up the financial details of all CPEC loans and grants, as well as the financing terms on which other Chinese loans have been taken for balance-of-payments support. The report cited unnamed officials as saying that such an eventuality has been the topic of discussion between Pakistani and Chinese officials — and if true, it sounds a bit like blackmail. One can only hope it has not come to this, but if it has, then the government is treading on a dangerously narrow ledge.

It may well come to that though, given that Pakistan is fast running out of options to shore up its reserves. Already at least $2bn have been drawn from the Chinese as balance-of-payments support, and the currency swaps position also shows some drawings. With options running out, and the deficit on the current account persisting, a future course of action is becoming urgent. The interim government has done the right thing in refusing to engage in what amounts to a strategic policy choice that goes far beyond the mandate of a caretaker set-up. What is needed is work to begin on what a potential letter of intent might look like and what sort of commitments Pakistan is ready to make in return for a Fund bailout so that at least the outline of an action plan can be left behind for the new government which would then not have to start from scratch. It is always better to go to the IMF with an action plan. The caretakers could encourage that conversation among government, business and economists. That would be within their mandate.

On DawnNews

Comments (15) Closed

Vimal

Jul 11, 2018 10:14am

the big mistake done by both India and Pakistan is that they are spending a huge amount in Defense. All wpns purchased are having life span. We are losing Billions and the same is going in the countries which dont like that there should be peace in this region.

Why Pakistan is currently in this situation, if the amount spend on defense in last 5 years was not spent. this situation would have not been like that.

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Amir Ali Khan

Jul 11, 2018 10:37am

Accumulated result of policies pursued by previous governments .

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Shah

Jul 11, 2018 11:31am

Back to IMF = failure of PPP and PML-N governments!

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F35

Jul 11, 2018 01:04pm

" opening up the financial details of all CPEC loans and grants, as well as the financing terms on which other Chinese loans have been taken for balance-of-payments support. "
In a democracy this data should already be in public domain.

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Raj, Bangalore

Jul 11, 2018 01:30pm

Why shouldn't CPEC financing terms be transparent? What is there to hide?

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Shahid

Jul 11, 2018 03:34pm

'...the fundamental dysfunctions of the economy remain entrenched in the five years since 2013 when the Fund’s support was last availed'. It seems to explain why it is the way it is.

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Noor-ul-Ain

Jul 11, 2018 04:11pm

NAB has to expedite in bringing back the looted fortune. Public can be invited to devise a fool proof plan so as to reimburse money that had been either loaned or taken away from Pakistan.

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Majeed at Thani

Jul 11, 2018 06:52pm

It is time to say bye bye to the IMF. Enough is enough. Our corrupt political leaders have enough hard cash and assets to replenish the exchequer. A bridging loan is an option till we bring back home the looted wealth of the nation.

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anon

Jul 11, 2018 08:29pm

It is like Groundhog Day -- haven't we all seen this picture earlier, and then again, and again...?

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Jitendraa singh

Jul 12, 2018 08:04am

It was foreseen and forewarned by readers and writers of Dawn before it is happening.Now the billion dollar questions is...How to manage it ???

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SAT

Jul 12, 2018 01:26pm

Has Pakistan paid back its previous outstanding from IMF?

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Lootra

Jul 12, 2018 04:37pm

@Vimal India's defence spending is one of the lowest in the world as a measure of GDP at less than 2% so please don't equate it with any other country. I recommend that you research how a percent of GDP translates into defence spending numbers and what impact it has on any economy.

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Shah

Jul 13, 2018 12:22am

@SAT Of course Pakistan has not payed back IMP previous loans. That is the whole point of IMF and World Bank when they were founded post-colonialism. A beautiful way for the Western post-colonial powers to keep their previous colonies in check and in control. No civilian government under PML-N and PPP, and as far as I am aware also no military, has had economic independence from IMF and WB as a policy.

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zak

Jul 13, 2018 02:14am

@Raj, Bangalore

Good question, in what world wouldn’t they be transparent?
Unfortunately I’m not sure that they really want to know.